Ann: Half Year Report to Shareholders, page-75

It seems one of your biggest problems is the inventory build up, because this also leads to your other big problem which is the claim that not enough cash is being generated. I think you have a wrong view of it here.

Not just that, but - as I showed was happening in my earlier post - I am actually equally concerned about the deterioration in Gross Margin, and the resulting lack of the degree of operating leverage at the bottom line which growing businesses would otherwise display (which I suspect is related to the Inventory build, as I said.)

As for my having a wrong view of it, I think, based on empirical observation, that companies that convert earnings to cash flow tend to make for better investments.


"I personally don't feel an inventory level of 27% is to high, when honey production is largely seasonal, e.g. there is one major harvest a year, and considering that when they were at 15.97% that was considered a shortage, that was described by management as uncomfortable and basically living hand to mouth."

Understood. Thanks for that management anecdote. Maybe I need to re-calibrate CZZ when it comes to bench-marking the business against other companies.


"You also claimed that it would be hard to reduce this inventory, How so? simply suspending honey purchases from out suppliers for 30 days would reduce it by a third, suspending purchases for 45 days would half it to below the worst year of shortage."

Yes, but presumably they make a profit on the honey that they purchase from their suppliers. So, to the extent that they suspend purchases, that will adversely affect their profitability.

Sure, they can just stop producing the stuff, and sell from their stocks, but it was kind of assumed in the discussion on this subject that the reduction of stock would be on a business-as-usual case, and one which would therefore not be profit-impairing.


But getting back to the deteriorating Gross Profit Margin, about which you declined to discuss. Do you have a view on what is happening there?